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Friday, September 14, 2012

It's the demand, stupid

Sometimes economics is simple.

What's wrong with the economy?  Too much taxes?  Too little taxes?  Too much spending?  Too much debt?  Too much gridlock?   Too many regulations?  Too few regulations?  Too much Keynes?  Too much supply side?   Socialism?  Capitalism?  Blah, blah, blah.

It's the demand, stupid.

When you crush the middle class there is no demand.  When you're drowning in debt, there is no demand.

How do you stimulate demand?

Well, for a while you can load up on stuff you can't afford through debt.

Then, once everyone is deeply in debt how do you stimulate demand?

You don't.

The Romans had vomitoriums for those who had gorged themselves, in order that they could return to the feast.  That's the original quantitative easing.  But after the third trip to the vomitorium, really, how much more could they eat?

Now the Fed has promised to stick its big fat fingers down its throat and disgorge as much cash as often as it takes to stimulate more demand.

The only real demand that will stimulate is the demand for hard currency and high end hard assets that will be increasingly hard to purchase with the content of the Fed's stomach.

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